Taking to the skies again! Challenges, opportunities, and growth strategies

Manufacturing Today, December 03, 2020

by Rajeev Kaul, MD & CEO, Aequs Aerospace

Abstract

The Indian Aerospace industry has been growing at twice the size of the nation's GDP, which has enabled advanced planning and resource procurement by component manufacturers in keeping with the rate of growth. However, the on-going pandemic that resulted in the lockdown reduced nearly nine million flight hours, wherein short and long route flights were grounded. With planes grounded and air traffic at an all-time low, COVID-19 has triggered an unforeseen crisis for the aerospace manufacturing sector.

As the country moves towards stabilizing the economy, it's pivotal for both the center and state governments to identify opportunities to drive growth and transformation. Progressive states such as Karnataka have been able to do that as they declared aerospace and defence companies as an essential service, thereby exempting them from the lockdown while ensuring compliance with the necessary preventive protocols, enabling the industry to gain lead time and make significant cost savings.

While the pandemic has impacted the aerospace industry's growth trajectory, manufacturers have found new ways to thrive. As companies realign themselves and make policy level and processual decisions while entering a global paradigm, this must be supported by a favourable regulatory and policy environment, focusing on positioning India as the preferred destination for aerospace manufacturing. To fortify India's manufacturing presence in the aerospace domain, the need of the hour is for OEMs to build self-sustaining ecosystems that can leverage global best practices, with the requisite planning and investments in terms of technology and processes. With the help of better infrastructure, government initiatives such as the "Make in India" and "Atmanirbhar Bharat Abhiyaan" (self-reliant India), and robust public-private–partnerships (PPP) within the sector, the industry can drive innovations and international collaborations, thereby enabling a gradual U-Shaped recovery for the sector in the next two to three years.

Introduction

India is one of the largest aviation markets globally, with the potential to make the country a preferred destination for aerospace manufacturing, equipped with global competencies. For the past 17 years, India's aerospace industry has been witnessing an unprecedented growth at twice the size of the nation's GDP, enabling advanced planning and resource procurement by component manufacturers in keeping with the rate of growth. Leading players in the Indian aerospace manufacturing industry have been demonstrating significant annual growth. Despite this, there are wide gaps in domestic manufacturing that is yet to be leveraged to the fullest compared to other nations globally.

To fortify India's manufacturing presence in aerospace, the need of the hour is for OEMs to build self-sustaining ecosystems that can leverage global best practices, with the requisite planning and investments in terms of technology and processes. This vision can be furthered with the help of better infrastructure and government initiatives such as the "Make in India" and "Atmanirbhar Bharat Abhiyaan" (self-reliant India). Additionally, there is also a need to encourage and facilitate robust public-private–partnerships (PPP) within the sector to drive innovations and international collaborations.

Current challenges and the need for immediate focus

Currently, the industry is facing a significant challenge with removing the offset obligations for major projects that are progressing through the Inter-Governmental Agreements (IGA) and the Foreign Military Sale (FMS) route, implying that a sizeable majority of these offset opportunities would no longer be available. Added to this, removing the civil aircraft from the list of products for offsets will be detrimental to the 'Make in India' mission, as it would disincentivize foreign OEMs from sourcing in India.

Covid Impact

Since the imposition of the lockdown in early 2020, there was a reduction of nearly nine million flight hours short, and long route flights were grounded. In line with the situation, progressive states such as Karnataka declared aerospace and defence companies an essential service, thereby exempting them from the lockdown with due consideration to complying with the necessary preventive measures. Allowing resumption of operations enabled these companies to gain significant lead time in addressing and bridging the gaps in the supply chain and prevented them from having to weather the additional economic damages emanating from the lockdown.

While the lockdown has been lifted and activities have resumed, there has been a significant impact on the aerospace industry's growth trajectory. However, manufacturers have found new ways to thrive by reallocating resources to align with the changes in demand due to safety considerations and changing travel norms in the commercial aviation sector. These concerns will linger on until such a time that an effective vaccine is available to the masses.

2021 and beyond: Post Covid Outlook for Aerospace in India

With the Indian economy at the cusp of change, all forces and energies are focused on setting the economy back to the pre-Covid levels and further growth. Owing to the industry's nature, it is of utmost importance that the aerospace industry is viewed independently from other sectors. Under these circumstances, the Indian aerospace sector must realign itself and put their minds to focus on the areas requiring fortification to bolster this growth process.

India has been unable to leverage its export potential fully. Compared to global standards, which offer commercial Aerospace Manufacturing over $100 billion worth of export opportunities, India stands at ~$300 Million only. Several factors need to be considered while planning growth strategies in the aerospace sector, like creating opportunities under offset policies for the civil aerospace manufacturing. A civil aerospace industry is vital in developing a manufacturing ecosystem as there is more work on the civil side, which thus provides scale and improves economic viability of investments. Removing civil aerospace from the recent DAV 2020 policy will effectively disincentivise OEMs engaged in both civil and military aircrafts to outsource work to Indian companies and pose as a roadblock to our ambition to become “Aatmanirbhar” in aerospace manufacturing.
Further, there is a need for the industry to foster a 'cluster mindset,' enabling it to envision growth for the manufacturing ecosystem. At this juncture, the industry's digital and technological transformation (industry 4.0) must be accelerated.

As companies have been redefining and reassessing priorities and procedures for the evolving new world order and the staggered unlock process, manufacturers must pay close attention to the industry's upcoming trends and align their production pipelines and capabilities accordingly. Additionally, manufacturers must consider boosting their investments in cutting edge technology such as smart factories and other digital investments while planning for the 'new normal.' It will also become imperative for companies to reassess their workforce skilling strategies to keep pace with this ever-evolving landscape.

Building a collaborative ecosystem with increased efficiency and sustainable growth at its core can be achieved when supported by a favourable regulatory and policy environment. This has the potential to position India as the preferred destination for aerospace manufacturing. With all these factors considered, we expect that the industry will witness a gradual U-Shaped recovery within the next two to three years.


This article first appeared in Manufacturing Today